Yahoo on Tuesday reported a 64 percent drop in net income for the third quarter, issued cautions about a weakening advertising market and confirmed that layoffs are on the way.
"As we saw the online ad market decline in the third quarter, I decided Yahoo needed to accelerate the process of getting more competitive," chief executive Jerry Yang said in a conference call. "We anticipate we will reduce headcount by at least 10 percent [by the end of the year]."
With 14,300 employed at the end of last quarter, that means at least 1,430 will lose their jobs in 2008. Yang indicated there could be further cuts in 2009.
For the third quarter, Yahoo reported net income of $54m (£33m), down from $151m in the year-earlier quarter. Excluding some items, the company's had revenue of nine cents per share, meeting expectations of analysts surveyed by Thomson Reuters. However, revenue excluding commissions of $1.325bn, a three percent increase, was less than the $1.37bn that had been expected.
Yahoo said the layoff are the centerpiece of a new financial goal to cut its current annualised expenses of $3.9bn by $400m by the end of 2008.
Other changes will come, too. Yahoo will relocate operations to lower-cost regions of the world, consolidate real estate, improve procurement and standardise its infrastructure, Yang said.
The big issue is display advertising, which weakened overall for the company.
"As economic conditions and online advertising softened in the third quarter, we remained highly focused on our 2008 strategy to invest in initiatives that enhance not only our long-term competitiveness but also our ability to deliver for users and advertisers," Yang said in a statement. "We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity."
The balance of cost containment and weakening advertising showed chief financial officer Blake Jorgensen's forecast about fourth-quarter results. "Given the weak economic climate, we're lowering the full-year revenue outlook but maintaining our operating cash and free cash flow outlook," he said.
Yahoo layoffs have been widely expected; the company hired management consultancy Bain & Company to evaluate its options and signalled that job cuts were one of several cost-containment measures Yahoo would undertake.
The internet pioneer is under pressure. Microsoft's attempt to acquire Yahoo for a price that rose as high as $33 is now even more notable given that Yahoo's stock has dropped to nearly $12. The company is also under pressure from the prevailing economic troubles, which many expect will cut spending on the graphical display ads on which Yahoo relies.
Yahoo also makes revenue from search ads, which many believe are more easily tied to actual performance measurements, such as customer purchasing, and, therefore, better able to weather the economic storm. However, Yahoo's top rival, Google, makes much more on search ads, and a partnership under which Yahoo would show Google search ads is under heavy scrutiny by US Department of Justice antitrust regulators.
Jorgensen also said Yahoo was "disappointed" with its light revenue, though pleased with the company's ability to keep that from hurting profitability.
"An increasingly challenging economic climate and softening advertising demand contributed to revenues this quarter coming in at the low end of our outlook range. While we are disappointed with our results, we're pleased that we continue to benefit from the aggressive cost-management efforts we have pursued during the year," Jorgensen said. "These efforts helped our adjusted operating cash flow come in above the midpoint of our outlook range for the quarter, despite significant investments in our strategic objectives. We have the balance sheet strength, liquidity and free cash flow we need to continue to make progress on our core strategies as we address this slowdown."
President Sue Decker said display ads were weakest in the areas of finance, autos, real estate and travel.
